Selling hope, delivering harm

This Issue’s Highlight FHA Fairy Tales

Veterans Affairs (VA) charges one-third the premium of the Federal Housing Administration (FHA) on a present-value basis and experiences a loss rate that is 20 percent of the FHA’s. VA mortgage-backed security (MBS) issuers absorb a loss rate 1.6 times that of FHA issuers yet are paid the same servicing fee and pay the same Ginnie Mae guarantee fee.

Implementing VA’s best practices, including reducing the FHA’s loan loss coverage percentage from 100 percent to 50 percent, would reduce the deleterious impact of FHA practices on working-class families and neighborhoods and help promote the responsible expansion of credit access to working-class families.

As demonstrated by the VA best practices over many decades, a coverage level well below 100 percent may be sustained without impacting the cost of FHA financing. Over time, the cost of FHA financing could go down.